What’s In a Tick?

by on February 16, 2014 5:08 pm BST

Tick charts have been around for a while, but they are often left behind for time-based charts. The primary reason is that time-based charts are what many traders learn to trade on. It is comforting to stick with what a trader has the most experience with, but tick charts offer advantages that time charts do not offer. And this is why many advanced and professional traders use them.

A tick is merely one trade transaction, and a new candle or bar is printed after the predetermined tick level is set. For instance on a 233 tick chart, it takes 233 trades before a next candle is printed, whereas, on a 10 minute chart it could be one trade or 500 trades for that individual candle – whatever transactions take place in that 10 minutes.

The benefits to this are that a trader is trading the actual market flow for that market. It allows the trader to potential spot a breakout or reversal before it can be seen in a time-based chart because the candle, or set of candles, has not printed yet.

In this example, I compare a break above resistance and the following sell-off on last Thursday at 8:30 a.m. (EST) on a 10 minute and 233 tick chart. The break above resistance at 1.3476 occurred on both charts, but the tick chart offered more candles, essentially more price action, to confirm price resistance. The 10 minute chart is rather compact and clunky. The tick chart also indicated a reversal sooner than the time based chart. In the 10 minute chart, selling presence was shown within the breakout candle, yet it still remained positive. For all a time based trader knew, the trend could be continued upwards. However, the tick technician can see the selling pressure prior, thus they can react sooner.

Chart of EURUSD, comparison of the 10 minute time frame and 233 ticks

Chart of EURUSD, comparison of the 10 minute time frame and 233 ticks

Another benefit for tick charts is that they offer an indication of volume. In a 133, 233 or 1,00 ticks, the trader knows that at least that number of transactions must take place before the next candle prints. This can be beneficial in low-volatility, off-market hours where just a few big orders can move price direction. The tick chart can show that only 50 of the 233 ticks have been completed, and that there is no real volume or follow through on the move.

Look to expand trading with tick charts. There is customization in these charts, so they can fit trader’s agenda.